The holiday season is fast approaching, and while this has always meant heightened anxiety for manufacturers and retailers, this year promises to be particularly tumultuous. Following record low holiday sales in 2008, manufacturers and retailers are no doubt bracing themselves for the worst-particularly given that unemployment continues to rise and money is tight. And with many companies already severely hobbled by the downturn, this holiday season could be do-or-die not only for retailers, but for the manufacturers, suppliers, and logistics providers that support them.
But pessimistic thinking and fear-based decision making is hardly the strategy to be adopted this holiday season. In fact, it is the surest track to failure. Fear and pessimism are contagious, and the last thing needed this holiday season is yet another reason for consumers to be wary. What is required instead is a renewed optimism and ardor-governed, of course, by a well-equipped supply chain and close-knit partner relationships. The road to recovery is neither quick nor sure, but companies armed with intelligent supply chain strategies will assuredly arrive there first.
Flexibility, Not Perfection
The first requirement of a holiday-ready supply chain? Flexibility. While a perfect world would leave little guessing room on the demand side, the only thing constant about demand in the real world is unpredictability. Buyers are notoriously fickle, and this is at no time more obvious than during the holidays, when shopping behavior and spending spike dramatically. To make matters worse, product cycles are shorter today than ever before-meaning that what's hip today, may be second-rate tomorrow. The enterprises that can't adapt-or can't adapt quickly enough- face hefty financial repercussions if forecasts deviate from actual demand.
In an environment where unpredictability is the rule, supply chain success depends on speed and flexibility-that is, how quickly can your extended supply chain respond to meet new requirements in demand?
For today's outsourced supply chains, the ability to respond rapidly to changes in consumer behavior requires more than a well-coordinated enterprise. All tiers of trading partners-including suppliers, logistics providers, and distributors-must be seamlessly integrated, enabling real-time information exchange and 100 percent visibility to inventory movement and distribution signals. For instance, if a particular product is selling much more rapidly in California than New York, a fully integrated, automated supply chain would produce automatic alerts to manufacturers and logistics providers so that inventory could be rerouted to accommodate for the unexpected imbalance.
More Information, Not More Inventory
If the key to a holiday-ready supply chain is flexibility, the key to flexibility is replacing inventory with information. Overstocking store shelves to avoid stockouts, or understocking in anticipation of reduced consumer spend, can sabotage revenue goals (for both the retailer and the manufacturer), and are unnecessarily expensive strategies to plan for the holiday season.
An "intelligent" supply chain relies on information-not inventory-to drive its decision making, routing or rerouting inventories based on information about actual demand. Many manufacturers depend on monthly planning cycles, analyzing and responding to data a full 30 days after it is gathered. These planning cycles are far too infrequent-and are particularly ineffective during the high-activity holiday weeks. The window to respond to changes in demand is shorter during the holiday season, meaning that information needs to be monitored much more frequently. In order to ensure that inventory decisions are based on information that is still relevant, point-of-sale (POS) data and distribution signals should be analyzed every few days, if possible.
While flexible, information-based supply chains certainly don't happen overnight-or on their own-there are a number of actionable strategies to improve the intelligence of your supply chain.
1. Visibility across multiple tiers of the supply chain. The ability to see a "single version of the truth" is critical to supply chain intelligence; transparency across all suppliers, logistics providers, and distributors enables your enterprise to make decisions based on a complete panorama of the extended demand-supply network.
2. Real-time information exchange. Visibility is only useful if the supply chain "picture" you're viewing reflects current information. Real-time data exchange-between all partners and tiers of the supply chain-is critical to building a fast, flexible supply chain, enabling you to respond to supply chain disruptions before the effects permeate the entire supply chain.
3. Sophisticated business intelligence. Business intelligence (BI) is getting more sophisticated and savvy every day, with KPIs measuring just about all aspects of supply chain efficiency. Good BI applications provide a diverse portfolio of reporting and analytics capabilities, enabling you to measure the relative success or failure of new strategies and programs. Unless your company has already invested in it, BI isn't likely to provide actionable insights in time for the current holiday season, but measuring the success rates of current holiday programs will generate a wealth of information for next year's big push.
It's All About the Relationships
You've heard the old adage before-it really is all about the relationships. And while this rule of thumb is generally understood within the context of social networking, it rings just as true for supply chain strategy.
The most successful businesses-from mom-and-pop shops to international manufacturing giants-are centered around customer service. This requires not only knowing your customers, but also accommodating and catering to them. Optimal customer service requires visibility and direct connection to your customer base, enabling you to monitor behaviors and respond quickly to requests. In a down economy, maintaining good relationships with customers is key to ensuring customer loyalty and satisfaction.
Supplier relationships are equally important. Visibility into supplier activities, and real-time access to inventory commits and cancellations are crucial to effectively planning and managing inventory movements. The ability to measure individual supplier performance is another benefit of multi-tier connectivity, enabling you to penalize or replace a poorly-performing supplier. Staying close to suppliers is also important from a motivational perspective-groups that are incentivized to work toward common goals will be more productive and correct disruptions more quickly.
Connecting to multiple tiers of trading partners, however, is no small feat. Third-party vendors offering on-demand, multi-enterprise platforms are a good place to start, and may be able to provide the virtual infrastructure needed to integrate hundreds or even thousands of trading partners.
With the holiday season just around the corner, it is high time to get your supply chains in order. Intelligent, flexible supply chains are your best defense against the erratic holiday rush-and are likely to prove equally effective in a perilous economy.
So as you prepare for the busiest time of year, take a deep breath and big step back. Remember the things that really matter most. Flexibility, intelligence, and solid relationships. Maybe smart supply chain strategy is pointing us toward more than just a healthy bottom line.
Rob Schoenthaler is senior vice president of deployment at E2open.
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